Health Research Institute (HRI)

1. www.pwc.com Health Research Institute (HRI) Stalking the ACO Unicorn May 2011

2. Agenda • Health Reform Landscape • Physician and Hospital Alignment • Stalking the ACO Unicorn • Q&A

3. Health Reform Landscape

4. Health research institute Federal budget pressure: Record deficits projected over the decade CBO January 2011 Baseline 40-Yr Historical Average = -2.8% 2010 Actual -8.9% CBO January 2011 Projection assuming: - Extension of all expiring tax cuts and AMT indexing - Phase-down of Iraq/Afghanistan spending - Discretionary spending grows with GDP - Medicare “Doc Fix” extension Previous post-war max = -6.0% in 1983 (reached -30.3% in 1943) Sources: Congressional Budget Office, January 2011

5. Health research institute Healthcare entitlements accounts for 60% growth in spending over the budget period, 2011-2021 Sources: Congressional Budget Office, January 2011

6. Costlier care is often worse care • The June 1, 2009, Atul Gawande New Yorker article, “The Cost Conundrum: What a Texas town can teach us about health care,” compares healthcare costs (using 2006 Medicare data) in McAllen vs. El Paso, two Texas cities with similar demographic characteristics Source: The Cost Conundrum, The New Yorker, June 1, 2009; Atul Gawande: The Cost Conundrum Redux; The New Yorker; June 23, 2009

7. Physician and Hospital Alignment

8. Interest in hospital and physician alignment All Physicians46% Cardiologists PCPs All Specialists

9. Top 5 reasons physicians want hospital alignment compared to the top 5 reasons they think hospitals want them Why physicians want hospitals Why physicians think hospitals want them

10. Most physicians considering hospital employment expect their income to remain the same or increase

11. Stalking the ACO unicorn: What the proposed rules tell us

12. The draft rules select for “DNA” traits that are more likely to result in ACO status Why? Traits IDS, PGP Stand alone Structure 100% meaningful use Partial meaningful use Technology Sticky Transient Community Population focused Individual/episodic Care Less likely to be an ACO More likely to be an ACO

13. “Top 10” key findings

14. “Top 10” key findings • 1. The draft rules favor health organizations that are ACOs in everything but name – much of the draft rules are based on the experience from the physician group practice (PGP) demonstration project . PGP participants qualify for an expedited application and review process. In addition the barriers to entry are high so that large integrated delivery systems with infrastructure in place will be more likely to meet these requirements than smaller, start-up organizations.

15. Pacesetters… • Five healthcare organizations are forming a new consortium to share patient e-health records on-demand and serve as a national model for data interoperability: • Kaiser Permanente • Mayo Clinic • Geisinger Health System • Intermountain Health • Group Health Cooperative • Physician group practice (PGP) demonstration project participants: • Billings Clinic, Billings, MT • Dartmouth-Hitchcock Clinic, Bedford, NH • The Everett Clinic, Everett, WA • Forsyth Medical Group, Winston-Salem, NC • Geisinger Health System, Danville, PA • Marshfield Clinic, Marshfield, WI • Middlesex Health System, Middletown, CT • Park Nicollet Health Services, St. Louis Park, MN • St. John’s Health System, Springfield, MO • University of Michigan Faculty Group Practice, Ann Arbor, MI

16. “Top 10” key findings • 2. ACOs will be measured on more quality metrics than any other federal program – the draft rules require organizations to track and perform against 65 quality measures set forth in 5 quality “domains.” The PGP program required only 32 and the new Medicare value based purchasing (VBP) program requires only 25.

17. ACOs require quality like no other CMS program 17

18. “Top 10” key findings • 3. Only 50% of physicians participating in the ACO need to meet meaningful use requirements – This brings up a question of timing because certification of meaningful use may not be complete for a 2012 ACO application to CMS. Additionally ACOs without a complete meaningful use capability will find it difficult to track and manage care.

19. Implementing meaningful use can enhance hospital-physician alignment which is essential for success under the accountable care model Source: PwC Health Research Institute Survey of CHIME CIO members

20. “Top 10” key findings • 4. There are many barriers to managing the ACO population – beneficiaries are free to seek care outside of the ACO and they are free to opt out of data sharing. ACOs may not even know the population they are managing until the end of the plan year. Although ACOs will see a prospective list of beneficiaries, up to 25% of participants may turn over in any given year.

21. Communication with patients may be a challenge --only 28% of consumers know what ACO stands for Source: PwC Health Research Institute Consumer Survey, 2010

22. Stickiness matters -- only half of consumers say they would always stay with a hospital or group of physicians responsible for their care Source: PwC Health Research Institute Consumer Survey, 2010

23. “Top 10” key findings • 5. It’s not easy money for three reasons – 1) miss a single quality domain measure and the ACO may not qualify for shared savings. Even if your costs are below the benchmark 2) If the per capita cost per beneficiary is less than 2% below the benchmark there is no shared savings. 3) If the ACO does qualify for shared savings CMS requires a 25% hold back to hedge against future losses in the three year contract.

24. Is the risk worth the reward? Estimated impact of a decrease and increase in spending of 5% against the benchmark for ACOs with 5,000 beneficiaries (ACO 1) and 60,000 beneficiaries (ACO 2)…

25. “Top 10” key findings • 6. FQHCs and RHCs are the ace in the hole–ACOs that provide some of its beneficiaries services through FQHCs or RHCs are eligible for up to a 2.5%-5.0% bonus depending on whether they are in the one or two-sided model. This also works in the reverse to decrease potential pay-backs if targets are not met.

26. The incentive bonus for providing services through FQHCs or RHCs will make them attractive partners for those pursuing the shared savings program Federal Qualified Health Centers Rural Health Centers

27. “Top 10” key findings • 7. There are 16 ways to be kicked out – ACOs must comply with communication, marketing, and service guidelines in addition to meeting quality and cost saving requirements. There is a process for a second chance under a corrective action plan (CAP). If you are terminated from the program you forfeit any shared savings you may have earned including the 25% withhold.

28. Monitoring and Termination of ACOs

29. “Top 10” key findings • 8. You can partner with other entities as long as your market share is under 30% – the DOJ and FTC are going to review competitors plans to jointly work in an ACO by each service line. This is going to be a granular analysis of market penetration that may further accelerate physician employment by hospitals and larger groups.

30. Physician alignment is key – here is what physicians believe Source: PwC Health Research Institute Physician Survey, 2010

31. “Top 10” key findings • 9. You are either in or you are out – by participating in the ACO program you are precluded from other CMS programs. This means the ten participants in the PGP program must choose between the two. The same holds true for the new payment pilots developed by the Center for Medicare and Medicaid Innovation (CMMI).

32. Can’t have your cake and eat it too… • CMS have determined that the following existing shared savings programs overlap with the proposed ACO Shared Savings Program and that no organization can participate in both:

33. “Top 10” key findings • 10. Decisions, decisions, decisions – the draft rules point to many decisions that will need to be made by applicants. Who do you form an ACO with and who are its participants? Do you apply for the lower risk one-sided model or higher risk/greater reward two sided model? The application process will be arduous; is it worth it to pursue this given the required commitment and the high bar to receive any savings?

34. Opportunities The draft rules have both opportunities and barriers to ACO implementation Barriers • First year quality domains are reporting only • ACO HIT requirements are aligned with meaningful use requirements • Using the “opt-out “patient consent approach to data sharing will be less burdensome than “opt-in” • If specialists delivering primary care in the ACO are defined as PCPs it could expand the universe of providers for ACOs. For purposes of beneficiary assignment, specialists can provide primary care, but cannot count their patients as assigned beneficiaries • Strong incentives for hospital and physician collaboration with the inclusion of future inpatient quality measures • ACO’s are not permitted to participate in several other CMS programs • Beneficiaries can opt out of sharing data with ACO • ACO risk and marketing rules may not align with state regulations • The FTC/DOJ is reviewing ACO's market share at the service line level which will be time consuming and the denial of an application is not appealable • Organizations could hesitate to become ACO because many quality measures are not currently reported publically • If under a CAP, ACO’s cannot receive the shared savings payments and can’t reapply for participation until the end of the 3 year agreement

35. The 4 key decisions any organization contemplating ACO status must make • Integration - Can the applicant realistically deliver all that is required for shared savings? How integrated is the applicant now? Will physicians be sufficiently engaged? • Cost-Benefit - The bar is set high to qualify as an ACO and to obtain any significant shared savings. Is it worth the cost to prepare and file an application? Should a provider wait and see how this works out in the first round? • Stickiness - Beneficiaries are in an open model and can seek services anywhere so the ACO must analyze and determine how "loyal" its patient population is since the ACO will be responsible for the cost and quality of the services provided to them. • Risk-Reward - Does applicant apply for the one -sided risk model (first two years --no down side risk but lower reward of shared savings and third year becomes two-sided risk) or the two-sided risk model (greater reward and risk all three years)?

36. Questions and Answers

37. http://www.pwc.com/us/en/health-industries/health-research-institute/http://www.pwc.com/us/en/health-industries/health-research-institute/ Benjamin Isgur director, Health Research Institute benjamin.isgur@us.pwc.com 214-754-5091